Real Estate Capital Markets Conference: Mid-Year Update

With just a little over three months to go before the next Real Estate Capital Markets Conference in January, we thought it an opportune time to revisit some of the predictions shared at the latest conference at the start of 2017.

The period was marked by a cloud of uncertainty hanging over real estate decisions, mainly tied to a new administration in Washington. As Michael Bilerman, managing director at Citi Research, put it then: “We don’t have a capital problem – we have a transaction problem. We’re talking about a massive amount of change.”

Fast forward nearly nine months and much of that overhanging uncertainty still lingers. Few of the policy proposals outlined in the administration’s first days—including tax reform and an overhaul of immigration laws—have made it very far. As a result, there is very little clarity about some of the biggest policy concerns voiced back in January, such as the impact on the EB-5 immigrant investor program.

In the public markets, many real estate investment trusts (REITs) are focused on divesting non-core assets, even those that are stable, income-producing properties. The market appears to be placing an emphasis on “pure-play” companies serving targeted markets and REIT companies are engaged in an unprecedented level of portfolio turnover as they hone in on select markets and appeal to more investors.

On the private side, deal flow remains slow, hindered by a mismatch between the growing amount of capital being raised and a dearth of opportunities to deploy it. Investors in properties that have matured to the point where they would normally cash out are staying put instead for want of better alternatives to redeploy their money.

Meanwhile, some of the predictions shared by our panel participants back in January are right on track, while others have ground to make up before the end of the year:

The MSCI US REIT Index “will probably lag the overall markets”: As of July 31, the index had returned 3.97 percent year to date, compared to the 11.6 percent return of the S&P 500.

“The global investment thesis is moving much more toward diversification”: As of July 31, the MSCI World REITs index had returned 5.27 percent year to date, beating its domestic counterpart.

Industrials “have taken over the top spot” as the number one asset class for institutions: Industrial cap rates for acquisitions of stabilized assets continued to compress in the first half of 2017 as prices rose, on par with improvement in multifamily; other U.S. commercial property sectors saw pricing little changed or significantly lower, as in the case of retail.

“We like urban office” to be the best-performing REIT subsector this year: Despite sustained overall job growth, conditions in the office sector softened somewhat in the first half of 2017, with rent growth well off trends in recent years.

As we begin to plan for the 2018 conference, Goodwin Partners John Ferguson and Gil Menna, and Columbia Business School Co-Directors of the Paul Milstein Center for Real Estate, Professor Christopher Mayer, and President of Metropolitan Real Estate David Sherman ’82, took a moment to discuss the partnership between Columbia and Goodwin, as well as the evolution and the importance of the conference over the past 10 years.

Come hear the next set of industry predictions, along with insights from a range of company leaders and institutional investors, at the 2018 Real Estate Capital Markets Conference being held in New York on January 26, 2018.